U.S. economic growth slowed sharply toward the end of 2025. Gross domestic product expanded at an annualized rate of 0.7% in the fourth quarter of 2025, according to the second estimate released Friday by the Bureau of Economic Analysis.
The reading was significantly revised down from the initial 1.4% estimate and marked a sharp deceleration from the 4.4% growth pace recorded in the third quarter.
The downward revision from the advance estimate was driven by weaker exports, softer consumer spending, lower government outlays and reduced investment, while imports declined less than previously estimated.
Compared with the third quarter, the slowdown in real GDP growth primarily reflected declines in government spending and exports, alongside a cooling in consumer spending. These factors were partially offset by stronger investment, which accelerated during the quarter.
Core PCE Inflation Rises To 3.1% In January, Before Hormuz Crisis Sending Oil Prices Higher
Separate data showed mixed inflation readings at the start of the new year. The Personal Consumption Expenditures (PCE) price index rose 2.8% year over year in January, down from 2.9% in December and below expectations for an unchanged reading.
On a monthly basis, headline PCE increased 0.3%, slowing from 0.4% in December and matching economists’ forecasts.
Core PCE, which excludes food and energy and serves as the Federal Reserve’s preferred inflation gauge, climbed to 3.1%, accelerating from 3.0% previously and matching forecasts.
On a monthly basis, core PCE increased 0.4%, matching both the previous reading and consensus forecasts.
Notably, these figures predate the surge in energy prices triggered by the war in Iran, indicating the inflation data does not yet reflect the latest oil and fuel price shock, which could begin to appear in the March inflation readings.
Market Reactions
Wall Street futures moved higher in early Friday trading in New York, with S&P 500 futures rising 0.6% to trade above the 6,700 level, pointing to a rebound after the previous session’s losses.
Oil prices eased after two consecutive days of gains. West Texas Intermediate crude traded around $94 per barrel, down 1.9% from Thursday’s close, though the benchmark remains on track for a fourth straight weekly advance.
On Thursday, the SPDR S&P 500 ETF Trust (NYSE:SPY) fell 1.5%, closing at its lowest level since late November 2025.
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